Introduction to Labor Economics

1. Introduction to Labor Economics Chapter 1

2. The study of labor economics requires a solid foundation in microeconomics. Review material may be found at: http://www.oswego.edu/~kane/eco101.htm

3. Microeconomics background • The study of labor economics requires a solid foundation in microeconomics • Review material may be found at http://www.oswego.edu/~kane/eco101.htm

4. Labor market vs. other markets • labor services are rented, not sold,

5. Labor market vs. other markets • labor services are rented, not sold, • labor productivity is affected by pay and working conditions,

6. Labor market vs. other markets • labor services are rented, not sold, • labor productivity is affected by pay and working conditions, and • the suppliers of labor care about the way in which the labor is used.

7. Positive vs. Normative Economics • Positive economics - an attempt to describe how the economy operates using the scientific method.

8. Positive vs. Normative Economics • Positive economics - an attempt to describe how the economy operates using the scientific method. • Normative economics - relies on value judgments to evaluate the overall functioning of the economy.

9. Positive economics • abstraction

10. Positive economics • abstraction • ceteris paribus assumption

11. Positive economics • abstraction • ceteris paribus assumption • test of model based on predictions, not assumptions

12. Fundamental positive economic concepts • scarcity

13. Fundamental positive economic concepts • scarcity • rational self-interest

14. Fundamental positive economic concepts • scarcity • rational self-interest • utility maximization

15. Fundamental positive economic concepts • scarcity • rational self-interest • utility maximization • profit maximization

16. Normative economics • interpersonal comparisons of utility are impossible

17. Normative economics • interpersonal comparisons of utility are impossible • Pareto improvement

18. Normative economics • interpersonal comparisons of utility are impossible • Pareto improvement • Pareto efficiency (aka Pareto optimality)

19. Normative economics • interpersonal comparisons of utility are impossible • Pareto improvement • Pareto efficiency (aka Pareto optimality) • problems with the Pareto optimality criterion

20. Markets and Pareto optimality • under ideal conditions, markets result in Pareto efficient outcomes

21. Types of Market failure • imperfect information,

22. Types of Market failure • imperfect information, • transaction barriers,

23. Types of Market failure • imperfect information, • transaction barriers, • price distortions,

24. Types of Market failure • imperfect information, • transaction barriers, • price distortions, • the nonexistence of markets when externalities are present,

25. Types of Market failure • imperfect information, • transaction barriers, • price distortions, • the nonexistence of markets when externalities are present, • public goods,

26. Types of Market failure • imperfect information, • transaction barriers, • price distortions, • the nonexistence of markets when externalities are present, • public goods, and • capital market imperfections.

27. Equity vs. Efficiency • Attempts to make market outcomes more equitable often results in the loss of economic efficiency.